Saturday, May 7, 2011

Silver update

In my last post I mistakenly used a chart that wasn't quite as up to date as I thought, so the comparison between paper silver and physical silver wasn't accurate. My bad. Here is an updated comparison using the closing prices from Friday, May 6th.

Yearly SLV ETF closing at $34.48

slv 5-7-11

Yearly spot silver closing at $35.62

silver 5-7-11

The charts are roughly similar, with a $1/oz edge going to physical silver. Note that since August, silver has still doubled in price. Two years ago it was selling for $12/oz. If a silicon valley high tech firm posted a 50% gain followed by a 100% gain, they'd be putting the CEO's picture on the cover of Time and making movies about him. In any case, the reasons for silver still hold. I repeat:

The dollar is still in decline, the Fed is still out of control, and Wall St. and congress are still full of crooks.

From what I've read, the whole episode started when the futures market authorities raised delivery rates. Normally, speculators in the futures market never take delivery on what they buy. They either sell the contract before it expires or roll it over to be sold at a future date. With the dollar falling, many speculators were taking delivery. Once the rates were raised, the higher cost would mean less demand and the big banks and hedge funds took out short positions on both silver and gold. Once word of that got out, everybody joined in and the route was on.

I expect the spot price will bounce around in the $30 range for the next 2-3 months while the Wall St. goons take their profits and make their campaign contributions. Once the short positions are worked through, silver should start to rise again, albeit much slower. Without the speculators, it will just be us poor folk building our rainy day stashes and the cycle will repeat. At least, that's what my Chrystal Ball said.

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